Trump Wants To Make Your Tips Tax Free — 3 Reasons This Could Help and Hurt You as a Customer
Written by
Chris Adam
Edited by
Chris Cluff
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During this contentious presidential election, one of Donald Trump’s proposals aimed at low-income workers is gaining support from some Republicans and Democrats. His plan deals with tax-free tips.
While Trump floated the idea this summer, he didn’t give very specific details. For example, there’s no word as to whether tips would become a tax deduction or exemption or would simply go unreported.
Here’s a closer look at the plan and what it could mean for consumers — many of whom are already frustrated with tipping culture.
Would Create ‘Two-Tiered’ Labor Market
According to The Wall Street Journal, “Former President Donald Trump’s proposal to make workers’ tips nontaxable introduces an untested idea to raise take-home pay that would encourage businesses and employees to recharacterize taxed wages as untaxed tips.”
Trump pitched the idea last month in Las Vegas, home to many service workers who receive tips. But it immediately drew criticism for the lack of details and concerns that it could hurt workers in the long run.
“The proposal would create a two-tiered labor market where tipped workers would gain a significant advantage over other low-wage employees because they could potentially avoid Social Security taxes, Medicare taxes and federal income taxes,” according to the Journal.
Might Further Frustrate Tip-Weary Consumers
What could this tax-free tips plan mean for you, as a customer? Well, likely, it would mean more pressure to tip.
Even as customers have expressed frustrations in recent years with more businesses and services asking for worker tips, this plan could move tipping culture into new places. The Journal offered as an example a service business like an auto shop keeping its prices and wages lower, but strongly encouraging you to tip to get untaxed income to employees.
Already, tipping prompts have led to increased confusion and frustration for customers at self-serve counters. If tax-free tips were to become reality in the United States, you could see more of these tipping prompts as a way for employers to potentially keep wages lower while putting the onus on customers to supply employees with tax-free income.
Would Reduce Federal Revenue
Trump is likely to face opposition to his plan.
“Such an idea, which would require approval from Congress, would create a change to the way many workers are taxed and could be challenging for lawmakers to write and for tax authorities to enforce,” the Journal noted.
Andrew Lautz, associate director of the Bipartisan Policy Center‘s economic policy program, told Bloomberg that the proposal “could boost tax avoidance and create budget problems for next year, when many of the 2017 tax cuts expire.”
Taxes on tips generate $38 billion in federal revenues each year, according to IRS data cited by the Journal.
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